Inflation Worries China Investors

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
12 May, 2010
New York City

Indexes in Hong Kong and Shanghai closed higher but consumer stocks fell on the worries of rising interest rates. China Railway Construction wins nearly $500 million contract. Zijin Mining agrees to buy 60% stake in Congo Mining Company.

[R]7:00 PM Hong Kong, China – Indexes in Hong Kong and Shanghai closed higher but consumer stocks fell on the worries of rising interest rates. China Railway Construction wins nearly $500 million contract. Zijin Mining agrees to buy 60% stake in Congo Mining Company.[/R]

Indexes in Hong Kong and Shanghai closed higher but most consumer companies and commodity producers fell today after concern that China will raise borrowing costs to curb accelerating inflation and elevated property prices.

The government imposed a ban in April for third home purchases and raised down-payment requirements and mortgage rates for second home purchases to curb the rise in home prices.

Rural Chinese are benefiting from the 15 billion yuan subsidy program made available by the government this year for appliances purchased by local residents to boost domestic consumption and ease the country’s reliance on exports and infrastructure spending.

Farmers using subsidies bought household appliances worth 20.8 million yuan in the first four months of the year, a 370% increase from a year ago, said the Ministry of Commerce on May 7. The top selling brand was Haier.

Subsidies were introduced to raise rural living standards, after state-run China Daily reported that the rural and urban income gap grew to its widest ever last year. The government paid about 7.54 billion yuan in subsidies in 2009 and may pay this year 15.2 billion yuan, Finance Ministry data showed. Each rural household can buy two products in a category, the government said.

More than 90% of the votes cast at a shareholders meeting in Hong Kong supported the HK$4.23 billion offer made by Hutchison telecommunications International Ltd for a buy out from the parent company Hutchison Whampoa Ltd, said Henry Chan, a private investor owning 2 million shares after the ballot today. The approval was more than 75% threshold required to ratify the offer.

China Railway Materials Commercial Corp, a state-owned infrastructure developer and steel trader may seek a listing in both China and Hong Kong to raise about 10 billion yuan in an initial share offering next year, said Vice President Liu Guoping today at the Mining & Asia Focus 2010 conference in Shanghai.

The company may join rivals Metallurgical Corp of China Ltd and China Railway Construction Corp to seek public offerings to fund expansions as part of the government’s push for state firms to restructure.

Hong Kong’s government today pledged to continue to boost land supply in an effort to cool property market.

“We hope the property market will remain stable,” said Financial Secretary John Tsang in his televised comments. There will be land auctions in June and July as already announced by the Lands Department, he said.

Hang Seng index in Hong Kong increased 65.98 or 0.33% to 20,212.49 and CSI 300 index in China closed higher 17.34 or 0.62% to 2,818.16.

Shanghai Movers

Bank of Communications Co., Ltd advanced 2.1% to 6.73 yuan after the lender said 9.97 billion A-shares held by the nation’s finance ministry will become tradable May 17, according to a statement issued today to Shanghai exchange.

China Vanke Co., Ltd, the property developer, added 1.5% to 7.36 yuan.

China State Construction Engineering Corporation Limited rose 0.5% to 3.76 yuan after the housing contractor recorded a 29.1% year-on-year increase in transaction value in the first four months of its real estate business to 18 billion yuan, according to a company filing.

China Gezhouba Group Company Limited, the civil engineering company, decreased 3.4% to 10.15 yuan.

China Railway Construction Corporation Limited rose 0.6% to 7.64 yuan after the railroad builder said its unit has jointly won a 3.79 billion yuan of bid, reports China Securities Journal, citing a company filing.

Ping An Insurance (Group) Company of China, Ltd, the insurer, gained 3.1% to 48.30 yuan.

Wolong Electric Group Co., Ltd, the manufacturer of electric machinery and home appliances, dropped 3.8% to 17.88 yuan.

HK Movers

GOME Electrical Appliances Holdings Ltd fell 2.1% to HK$2.29.

Hong Kong Exchanges and Clearing Limited fell 0.2% to HK$123.10 after the operator of stock exchange and futures exchange reported first quarter revenues rose 28% to HK$1.71 billion from HK$1.34 billion a year ago. Net profit in the quarter rose 35% to HK$1.13 billion or HK$1.04 per share compared to net profit of HK$834 million or HK$0.77 per share a year ago

Zijin Mining Group Co., Ltd rose 2.8% to HK$6.21 after the gold producer announced on May 8 that the company agreed to spend $170.4 million for a 60% stake in Platmin Congo, based in the Democratic Republic of Congo according to a company filing.